Distressed bonds improve with broad market; oil and gas debt firms on oil rally; coal rebounds

By Stephanie N. Rotondo

Phoenix, May 21 – There was definite strength in the distressed debt market on Thursday, as the dollar weakened and oil prices improved.

However, traders said liquidity was starting to wane ahead of the Memorial Day holiday.

“I think that might be it for the week,” one trader said.

Crude oil prices rallied on Thursday as new data showed a drawdown of U.S. crude futures at the Cushing delivery point, indicating that the country’s current supply glut could be dwindling.

West Texas Intermediate crude rose $1.74, or 2.95%, to $60.72 a barrel, while Brent crude gained $1.49, or 2.29%, to $66.52.

The dollar’s weakness and growing security issues in the Middle East were also playing a role in the gain.

As for the distressed oil and gas space, bonds were ending mostly better.

SandRidge Energy Inc. in particular was on the rise, after several sessions of sizable losses.

A trader saw the 8½% notes due 2022 ending up 1½ points at 63, as the 8¾% notes due 2020 inched up half a point to 67.

Energy XXI Ltd.’s debt was also improving.

A trader called the 8¼% notes due 2018 “up a solid 2 points” at 71. The 6 7/8% notes due 2024 gained almost 2 points, closing around 36¾ and the 7½% notes due 2021 finished 2½ points higher at 39½.

On Wednesday, it was reported that a group of unsecured creditors led by Franklin Resources Inc. had approached the Houston-based company regarding a potential restructuring.

However, W&T Offshore Inc.’s 8½% notes due 2019 slipped in trading by over a point to 73¾.

The decline came as Moody’s Investors Service cut its rating on the company’s notes to Caa1 from B3.

In the coal arena, bonds were also seen improving.

One trader said Peabody Energy Corp.’s 10% notes due 2022 “rebounded back a little bit,” ending around 80.

“Maybe it was a relief rally,” he said.

Another trader saw the company’s 6½% notes due 2020 moving up over 2 points to 53.

At another desk, the 2020 notes were pegged at 53 bid, up just half a point.

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